Fidelity Investments and Charles Schwab Corp. have blocked clients from investing in money market ETFs offered by BlackRock and Texas Capital on their trading platforms. This unusual move affects three specific ETFs: the iShares Government Money Market ETF, the iShares Prime Money Market ETF from BlackRock, and the Texas Capital Government Money Market Fund.
Spokespeople from both Schwab and Fidelity confirmed the decision, citing company policies that restrict access to money market ETFs from third-party providers. Schwab recently filed with the Securities and Exchange Commission to launch its own government money market ETF, aligning with its long-standing approach of only offering Schwab affiliate money market mutual funds as part of its cash management solutions. The restriction has surprised many investors, as trading platforms like Schwab and Fidelity typically do not limit access to exchange-traded funds, even if those funds compete with existing in-house offerings.
Restricted ETF access by major brokers
Mike Younkman, CIO at Ankerstar Wealth, expressed disappointment over the sell-only mode imposed on the funds, which led his firm to shift client assets back into short-term bond ETFs. Jeremy Ingram, CEO and CIO at Beacon Harbor Wealth Advisors, also noted the unexpected nature of the restriction, emphasizing that money market ETFs are not exotic investments.
Texas Capital stated, “it is unfortunate and surprising that Schwab and Fidelity would restrict their clients’ ability to purchase MMKT,” adding that the fund “remains an important tool for investors to manage their cash.”
Despite the Federal Reserve’s recent pause in rate hikes, money market funds continue to attract significant investor interest due to high short-term rates, with assets reaching an all-time high of over $7 trillion. Fidelity manages approximately $1.5 trillion in registered money market fund assets, while Schwab oversees about $650 billion. Texas Capital’s fund, the first ETF to follow the SEC’s Rule 2a-7, has seen limited inflows this year, while BlackRock’s prime money market fund has attracted $43 million since its launch in February, and its government offering has seen a net inflow of $8 million.
The move by Fidelity and Schwab is a significant development in the financial industry, with broad implications for investors and the future landscape of money market funds. As the asset management industry evolves, the competition between traditional mutual fund providers and ETF issuers continues to intensify, leading to new challenges and opportunities for investors.
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